Govt plans same care for leather, jute as RMG

Infographic: TBS

Prime Minister Sheikh Hasina has instructed to extend incentives to the leather and jute industries, mirroring the benefits provided to the readymade garments sector. This strategic move aims to elevate export earnings from these locally sourced raw material sectors and cut the country's reliance on the garment industry.

The directive was issued during an informal cabinet meeting in Tungipara, Gopalganj, as revealed by Industries Minister Nurul Majid Mahmud Humayun and State Minister for Commerce Ahsanul Islam Titu on Sunday.

Exports from the leather and jute industries have stagnated at around $1 billion for several years. In response to recent declines in these sectors' exports, the prime minister's directive encompasses various benefits, including a corporate tax discount, a bond facility akin to the garment sector, additional loans from the export development fund (EDF), and cash incentives.

Illustration: TBS

The government currently offers export incentives ranging from 7% to 20% for jute products and 10% to 15% for leather products. However, during the 1980s, the garment sector enjoyed a more substantial incentive of 25%, later reduced to 20% in the early 1990s. This significant support played a crucial role in propelling the garment industry to become the second-largest in the world.

Economists emphasise the importance of export diversification, deeming the over-reliance on a single product in Bangladesh's export earnings as precarious. Despite government initiatives, export diversification remains an unrealized goal, with 84% of total export earnings in the last fiscal year originating from garment exports.

According to the Export Promotion Bureau, leather and leather goods exports in FY2022-23 totaled over $1.22 billion, representing only 2.4% of that year's export earnings. In the first six months of the current fiscal year, the sector's exports reached $523 million.

Similarly, jute and jute product exports in FY22 amounted to $1.16 billion, constituting only 3% of total exports that year. In the last fiscal year, sector exports fell to $912 million, or 1.64% of total exports.

Despite longstanding pleas from leather and jute traders for benefits similar to the RMG industry, the prime minister's directive underscores a renewed commitment to promoting export diversification, as emphasized by State Minister for Commerce Ahsanul Islam Titu at the Secretariat on Sunday.

"On Saturday, the prime minister directed us to give similar facilities to the leather and jute industry as RMG," he said.

"The value addition of the leather and jute industry is very high. If incentives like the RMG industry are given, the export volume of these two sectors will increase a lot. Through this, export diversification will be possible," said the State Minister of Commerce.

On the same day, Industry Minister Nurul Majid Mahmud Humayun said initiatives are being taken for incentives to encourage exports in the leather industry like the garment sector.

Before this, a meeting presided over by Secretary of the Prime Minister's Office Mohammad Salahuddin, was held on 11 January on the development and export of leather products and the footwear industry. Earlier, the Prime Minister's Office held several meetings on the development of the jute sector.

Garment industry owners can borrow up to Tk200 crore from the Bangladesh Bank's Export Development Fund (EDF) to provide low-interest foreign currency loans to exporters at 4.50% interest. On the other hand, the maximum loan facility for the leather sector is Tk 7 crore.

Bangladesh Bank officials said that EDF's circular has also mentioned credit facilities for jute exporters but in terms of borrowing from this fund, jute exporters are not able to take any loan from this fund.

Talking to the businessmen of the readymade garment industry, leather sector and jute sector, it is known that while the three-year bond license facility is given for the readymade garment industry, the members of the Leather, Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) are getting the bond license facility for two years. On the other hand, there is no bond licence facility for the jute sector.

The members of BGMEA and BKMEA get two years for bond licence audit, but tanneries have to be audited every year.

Garment industry owners can take utility permission and utility declaration BGMEA or BKMEA for the use of raw materials before production based on annual import availability of raw materials, but leather sector exporters have to take this facility from Customs Bond Commissionerate, which is considered very cumbersome and time-consuming by the entrepreneurs of this sector.

Readymade garment industries receive equipment input coefficients from BGMEA offices for short-term use of raw materials to prepare export products. However, LFMEAB members are required to receive input-output or input coefficients of raw materials used in the preparation of export products from the Customs Exemption Directorate (DDO) through the joint committee of LFMEAB and DDO. It takes 15 days or 2 months from the date of application to get it.

Leather and jute traders said that there is a separate sample passbook for samples of the readymade garment industry. However, there is no sample passbook in the leather goods and footwear industry. BGMEA factories can easily return production materials to suppliers of imported products in case of product recall due to product quality issues. But leather and shoes do not have this advantage.

The fire insurance premium for RMG is 0.20% and the shipping insurance premium is 0.14%. But advance insurance premium is 0.375% and shipping insurance premium is 0.22% for export-oriented synthetic and fabric blend footwear companies. These insurance premiums for the jute industry are also higher than RMG.

Traders said documents issued by freight forwarding companies are treated as shipping documents for verification purposes for taking cash assistance for BGME members. But leather and jute do not have this facility.

Based on infrastructural development, organisations in the readymade garment sector are recognised as green-class factories. However, even if the leather goods manufacturing company achieves green building certification, it is given orange recognition.

As per Import Policy Order 2021-24, there is an opportunity to import raw materials sent by the buyer free of charge for fulfilling export orders for the garment industry. But this facility is not available for leather and jute industries.

However, the jute and leather industries are getting additional benefits compared to readymade garments in terms of cash incentives against exports. In addition to a 1% incentive on the export of any readymade garment product to any market, 4% instead of duty drawback, and 4% incentive against the export of new products and new markets are provided by the government.

On the other hand, the government provides incentives ranging from 7% to 20% for the export of jute products and 10% to 15% for the export of leather products.

Nasir Khan, managing director of Five-R-Footwear Ltd and vice president of the Leather Goods and Footwear Manufactures & Exporters Association of Bangladesh, said, "The opportunities given to RMG in terms of exports are not available to other export-oriented industries including the leather sector. If given equal opportunity, other sectors can also progress. There will be diversification in the export basket of the country."

"RMG industry exports products; so do we. There should not be such a difference in government policy. We were able to convey this to the Prime Minister, due to which she agreed to provide equal benefits," he added.

Nasir Khan said, "We did not want equal benefits for the leather sector only. We propose to give equal benefits to those who export goods. By favouring only RMG, other sectors should not be left behind. If all the export-oriented sectors get benefits, they will also move forward."

Bangladesh Tanners Association (BTA) Chairman and Managing Director of Anjuman Trading Corporation Ltd Md Shaheen Ahamed Told The Business Standard, "We had a supervised bond that has been closed for one and a half to two years. They are not giving us the supervise licence now; they are giving us a general license. This is a big problem in the tannery sector."

"We should give the same facility as utilisation permission (UP) is taken in the garment sector. We should do the same as the bond manual also gives in the garment sector. If the business can be simplified, the leather industry will go further and exports will increase," he added.

Mohd Shafiqul Islam, proprietor of Dubai Jute & Bag Corporation, told TBS, "Producers of jute products get some facilities from the government. But those who are non-producers, who buy products from others and export, do not get any benefits including incentives."

Rashedul Karim Munna, managing director of Creation Private Limited, a multipurpose jute exporter, told TBS, "Bond facilities like RMG are needed for the jute sector. The Jute sector now does not get a bonded warehouse facility. The facilities provided by the government to boost up the RMG sector, if given to the jute and jute products sector or given equal opportunities, this sector will also develop. The government's exports from this sector will also increase."

Former DCCI President Rizwan Rahman told TBS that there are many benefits for the leather industry in the European Union and other countries. As the local value addition is high here, this sector should get more attention.

He said the prime minister's three diversification priorities are - export, market, and product diversification. Preferring leather or jute industry, product diversification is taking place in these two sectors.

"If there were diversified products, the economy would not have had so many problems. Value addition is high in the leather and jute industries. In this case, export income will increase. A country like Bangladesh should export $10 billion from leather. But now the income is like one billion or a little more," he added.

"Policies should be developed with private sector entrepreneurs on equal opportunities like readymade garments. To increase export earnings from leather and jute, urgent implementation through inclusive consultation is essential," he said.